Global View

By Zainab Morbiwala

Aerial view of Surat, India. Photo: Today Group/Getty Images

India is undeniably a powerful force in the worldwide
diamond market, with a proven ability to capitalize on its advantages and
mobilize its resources. In an exclusive interview with Rapaport Magazine,
Rajiv
Jain, chairman, and Sanjay Kothari, vice chairman, of the Gem and Jewellery
Export Promotion Council (GJEPC) discuss the challenges and growing role of
India in the diamond industry. GJEPC is the umbrella organization for promoting
Indian gems and jewelry worldwide.

RAPAPORT MAGAZINE:What is India’s role — and its impact —
in the global diamond industry?

RAJIV JAIN: India has a leadership position in cut and
polished diamonds and the proof is in the numbers. Ninety percent of the global
supply of diamonds by volume are cut and polished in India, 70 percent by
value. That means 14 out of every 15 diamonds sold or placed in jewelry
anywhere in the world are cut and polished in India. That is our strength and
it developed only recently over the past 45 years. It was around 1960 that
diamond cutting and polishing started in Gujarat, then moved to Mumbai and on
from there.

In a way, India democratized diamonds because we are cutting
from both the biggest and smallest pieces of diamond. Previously, diamonds were
only for rich people because they were all solitaires and the larger diamonds
were all cut in Belgium and other major diamond centers.

But when we started cutting in India, we worked with
industrial diamonds that those centers were not able to cut and polish. An entrepreneur
from Gujarat is said to have started cutting and polishing industrial diamonds
and this is how the pool of skilled labor began in this country. Today, we have
approximately 700,000 cutters in India, not counting another two million
involved in other sectors of the industry and in support operations. Those
two-million-plus people are our strength.

SANJAY KOTHARI: India has been involved with diamonds for
thousands of years since the Mughal era and the era of the kings. The diamond
has always been popular in India and all the big and famous diamonds were mined
in India so the affinity of India for diamonds is well established.

We moved into the export arena and a more prominent role in
the industry only after 1960. But government policies and import-export
practices were not very smooth or very supportive of business at that time. It
was in 1966 that the Gem and Jewellery Export Promotion Council (GJEPC) was
founded and the government began to frame its policies for importing raw
material and exporting polished diamonds. When the manufacturing of diamonds
started around the same time, the whole diamond industry came into focus.

When the council was formed, diamond exports were
approximately $28 million a year and today exports total $43 billion. So,
during this journey of only 40 to 50 years, we have strengthened our global
position to such an extent that India today is the world’s largest
manufacturing center for diamonds even though we no longer have any significant
mines. And our position
today is a feather in the cap of our forefathers and ancestors who, along with
the Indian government, had a vision for the future of the diamond industry.
Those early visionaries opened offices in Antwerp and Amsterdam and from there,
people started importing the raw materials and they took their training in
Israel or Belgium.

Today, you can compare our 700,000 people in the diamond
cutting and polishing industry to Israel, with a few thousand, and Belgium,
with a few hundred. This is not to take anything away from those centers, but
just to show our growth. Indian gem and jewelry exporters have approximately
2,500 offices worldwide. But it’s not just about buying rough and
manufacturing. Our marketing expertise also has been growing and our marketing
initiatives have been very effective.

RM:India is always seeking new rough supply to keep its
manufacturing sector operating. You were recently turned down by Russia for
additional rough and the Argyle mine is producing less. What are you doing to
help assure a steady supply of rough?

RJ: Obtaining rough is a continuous effort — as I mentioned,
there is a huge pool of gem cutters in this country — but the problem is not
that we were turned down. Every country that produces raw material prefers to
use that raw material to develop manufacturing and laboratories in their own
country. That is happening everywhere.

India is getting a supply of diamonds from around the world
and it is not that anybody has stopped supplying us. But there is a global
scarcity of diamond supply and we have to work with that. We are trying to
source as much rough as possible and we are going to any new centers where we
can get direct sourcing.

SK: The rough market has changed dramatically since the days
when De Beers controlled almost 85 percent of the rough production mining in
the world; their share has decreased and now is about 30 percent to 35 percent.
New mines are opening. The cartel has been broken. Russia is operating
independently. And we have Zimbabwe.

I don’t believe any other country will match the
manufacturing capacity of India in the near future so the rough suppliers will
have to look at India. At the same time, we are searching out new sources where
we can buy the raw material. Zimbabwe has opened up, Canada has opened up, a
lot of other mines in India also are coming up so sustaining the rough is not
going to be difficult. The supply and demand mismatch that we are seeing now
will be taken care of over time.

RM:How is India dealing with the U.S. and European Union
(EU) sanctions on Zimbabwe rough? How can we be sure that Zimbabwe diamonds are
not going to the U.S. and EU in finished jewelry?

RJ: We want to emphasize that there is no industry sanction.
All rough travels with its Kimberley Process (KP) certification. We believe in
the KP system and GJEPC strictly follows it — our stand is that the KP paper
should be there. When it was not there, we were not importing Zimbabwe rough.
But now the supply has cleared the KP, it has started shipping and it is coming
to India and going to other places as well. There is currently no KP sanction
on Zimbabwe rough; rather, it is allowed.

As far as the issue of illegal diamond trade goes, it can
happen anywhere in the world. Some dealers might take rough out of one country
and try to sell it in another country where it is illegal and that is a fact of
life.

SK: The U.S. and EU have put their own sanctions on Zimbabwe
diamonds and they are asking people to refrain from using Zimbabwe diamonds. It
is like the situation with Iranian oil, which India is importing, but it is
banned in the U.S., so products made from Iranian oil cannot be exported to the
U.S. It is the same situation with diamonds. If I have a client in the U.S. and
if I am supplying him, then I have to take care that I don’t use Zimbabwe
diamonds — even though it is difficult in smaller sizes, where it is not always
easy to identify the source. But still, people are trying to manage.

We also have organized an Indian cartel to buy rough. With
the cartel, we can collectively buy quantity rough in good deals and we can
look at collectively buying mines in the future. We are concentrating all our
efforts to see that the number-one position of India is maintained as far as
cutting and polishing is concerned.

RM:How has India’s role in the worldwide diamond industry
changed in recent years?

RJ: India has moved beyond cutting and polishing and
manufacturing. It is adding further value by designing its own jewelry,
producing that jewelry and exporting it to the world. Previously, we were
manufacturing jewelry based on international designs, but now India has
developed its own design capabilities. India International Jewellery Week
(IIJW) shows the world what design capabilities India has developed and how
much innovation in jewelry designing is being done in India. So that is a
change in the past 20 years to 30 years. India also has moved beyond diamonds
and is working with colored gemstones.

The other change is that India has its own standing now. I
remember a time when it was very difficult to attend and participate in the
international shows but both the 2011 Basel show and the 2012 JCK Las Vegas
show were designated as official India shows by the Ministry of Commerce and
Industry. Our Minister of Commerce and Industry attended the Basel show and the
Indian Ambassador to the U.S. Nirupama Rao appeared at the JCK show. So the
presence and visibility of India are growing along with its strength. And
through the efforts of the council and the government, people are beginning to realize
that the diamonds they are buying from other centers are cut and polished in
India — that is something they didn’t know before.

SK: India’s role in the industry has not changed
significantly as far as manufacturing is concerned. But the marketing initiatives
by the Indian industry have been outstanding. It is a difficult task for us to
hold on to the number-one position. We see China coming up and it has started
manufacturing too, and it can easily compete with India because it has similar
advantages, including economical labor and a large workforce.

RM: What forces
were at work in getting the Indian diamond industry to where it is today? What
are the “secrets” to its success?

RJ: It is the entrepreneurship and the hard work of the
entrepreneurs of India, particularly the whole belt from Gujarat to
Maharashtra. The way they have worked their way up is admirable.

And not only within India, but outside India also, Indians
who are in the diamond business have settled in Antwerp and other diamond centers.
They have their own leadership. If you go to any international shows, every
fourth booth will have an Indian face. Maybe they are not living in India,
maybe they don’t even have Indian passports, but people know their origin is
India.

The Indian government also has realized the potential of
this industry and has implemented policies and provided support to help
strengthen the industry. Without the help of the government, nothing could be
achieved. So it is the entrepreneurship of the Indian people, their hard work,
the policies of the government, the council and all the people who have served
the council in the past — it is the combination of all these factors that have
led to our success.

And we have to mention education and training. Previously, there
were no institutions or schools for this industry. Each household was an
institution or school in itself—
this exists even today, where the father teaches the tricks of the trade to his
children. But now we have various institutions, including the Indian Institute
of Gems and Jewellery (IIGJ) and the Indian Diamond Institute (IDI) to impart
knowledge not only in cutting and polishing but also jewelry
making, designing, management, etc. There are so many courses already on offer
and more to come.

With the help of the National Skill Development Council
(NSDC), we have formed the Gem and Jewellery Skill Council of India (GJSCI)
with the goal of reaching more institutions and expanding technology to develop
the human resources for the industry. If we are to continue to grow, we need
qualified manpower to support the growth.

SK: Marketing has played a key role in our development.
Earlier marketing for diamonds in the 1960s, ’70s and ’80s was done by De Beers
— we were getting a free ride on someone else’s money and that is how 40 years
went by. But De Beers is no longer spending that money and why should they? Its
share of the diamond market is no longer the 85 percent it once was; it’s
closer to 35 percent. India recognizes how important marketing is to the
worldwide diamond industry and to India’s own industry.

RM: Are there any roadblocks to continued success? In other
words, what is standing in the way of further growth? What are you planning to
do to remove or reduce these roadblocks?

RJ: First, we need more skilled people — not only skilled
labor but also skilled managerial staff, technicians, marketing staff and
people who can create and understand brands, which is an area that needs to be
developed.

Second, if we really want to see India as a diamond hub for
the world, we need people from around the world to come and establish offices
here. For this, we need the help of the government and we have been talking to
the government about implementing some sort of turnover tax. If we want people
who have been supplying rough to us to set up offices here, then we have to
give them the same kind of platform other centers, such as Belgium, Hong Kong
and Dubai, are giving them.

Third, our infrastructure is a roadblock, but this is an
area where we are seeing a lot of improvement. Again, this is an area where the
government can help in establishing more bourses in the country. We also need
good exhibition and convention centers because it can be very embarrassing when
people from abroad attend the India International Jewellery Show (IIJS) and
IIJW and see our facilities. Holding a jewelry exhibition in a factory sends
the wrong message.

SK: I don’t see any major roadblocks to our continued
success but marketing initiatives need to receive serious attention —
especially when there is such competition from other luxury goods — so that
consumers buy diamond jewelry. Excitement needs to be created around diamond
jewelry, excitement either from the investment point of view or adornment point
of view. Today this excitement has declined a bit, in part because of the price
point of diamonds, but also
because of all the other luxury goods available.

RM:How important has Indian government support been to the
success of the diamond industry? What kind of support has been most important?

RJ: There has been tremendous support for so many years and
it has been critically important. There was a time when there were huge
restrictions on our activities and various licensing issues. Many of those have
been resolved.

But there still are export/import issues where we have to
travel multiple times to Delhi to get clarification or an interpretation of a
specific circular or notification. That is a waste of time. And the people
sitting in the offices who manage this whole process should understand that
these delays interfere with the growth of the whole industry and the country.
We understand that very often, they are being cautious because they are worried
that something incorrect or illegal could take place.

SK: One reason the government has been very helpful in
eliminating roadblocks for our industry is because it realizes the potential of
this industry. The formation of GJEPC in 1996, in fact, was specifically to
breach the gap that existed between the industry and the government.

RM:Was there a turning point — an event or development — at
which India made a breakthrough to become a more formidable global competitor
than it had been previously? What was it and why was it important?

RJ: Our growth has been a gradual process and not just one
event or development. The first milestone was perhaps when some Indian
entrepreneur realized that an industrial diamond could be cut and polished and
used in a piece of jewelry. That happened sometime in the 1960s. Another
turning point came when the government understood the potential of this
industry to grow and made changes to help us reach that potential by altering
the license structure, abolishing duties on rough imports, etc. The third
milestone was the council’s establishment of institutions for training.

SK: It has been a continuous effort. Our predecessors had
the vision in going to Antwerp, getting people trained, etc.

RM:India and
China are competing against each other as manufacturers. What advantage does
India offer the diamond industry?

RJ: The pool of skilled labor that we have and the
entrepreneurs we have — this is the strength we have in comparison to China.
Language is also a major factor for us. In China, English isn’t spoken as
frequently as it is here in India.

SK: As I said earlier, India has strong marketing abilities
and the intricacies and the labor and expertise to cut and polish, particularly
the lower-quality goods, which the machines cannot do because it requires the
human eye and human hand. This we have developed over a period of 40 years.
Eventually, China will be able to do this also, but it will take them almost a
decade to catch up to us in the know-how and detailing of rough diamonds.

RM:In what areas have Indian companies made the most significant
gains in recent years? How have they achieved them and why?

RJ: They have succeeded because they are born entrepreneurs
and because of the way they have marketed themselves and their brands and
companies. Indian companies have offices around the world so it is all very
organized and synchronized and a continuous process.

RM:Of all the marketing and promotional efforts launched by
GJEPC, which have been most effective?

RJ: Exhibitions are the most effective, with the IIJS and
IIJW our two most prominent events. There are also the trade delegations we
take abroad and the India Shows we have done and the media publicity. The
educational centers have also contributed to the growth of the industry.

SK: IIJS has been a major event for us. And also its
transition from a business-to-consumer (B2C) format to business to business
(B2B). IIJW has been important in portraying India as a designing destination.
We take part in about 20 international shows a year and lead delegations to
different parts of the world where it can be difficult to travel on your own —
Latin America, Commonwealth of Independent States (CIS), Russia, the Middle
East and Pakistan. And none of this is one-way traffic. We invite them to IIJS
as well.

RM:How has the balance between India and the U.S. changed
in recent years? What was the time frame?

RJ: We have increased our market share in the U.S. not only
in diamonds but also in manufactured jewelry. We have a good marketing presence
in the U.S. as well.

SK: At first, we were selling just loose diamonds but since
1991, we have been exporting finished jewelry. And we are now selling our own
designs, since we have learned the design preferences of the Western world. The
U.S. is still our biggest market.

RM:How do you see India’s role in the global diamond
industry changing in the future?

RJ: India has all the ingredients to become a jewelry hub in
the true sense — with everything coming to India — and I am eager to see this
happen. One advantage we have is that the other centers that are cutting and
polishing diamonds or making jewelry don’t have the domestic market we have.

SK: Whatever changes occur for this industry — maybe in the
KP, Zimbabwe, whatever — I would just like to see us play an active part in
those changes and hold on to our position.

RM:Short-term, what are your goals for the industry?
Long-term?

RJ: Long-term, India should become a hub for gems and
jewelry and short-term, we need to upgrade our technology and establish more
training schools.

SK: 2012 seems to be shaping up as a crisis year so our
short-term goal is to see that 2008 is not repeated. We have to make an effort
to assure that 2012 and 2013 pass smoothly. Our long-term goal is to see how we
can increase our share in the world market and grow even further. The sky is
the limit for us.

RM:Where would you like to see India’s diamond industry in
10 years? 20?

RJ: If everything goes well and we are able to achieve our
short-term goals, then I am very optimistic the presence of India will be
worldwide. Once you reach a certain high level, it takes more effort to stay at
that level than it took to reach it in the first place. It is always more
difficult to be on top because you are more visible and everyone is competing
with you.

RM:What will it take to get there?

RJ: The collective efforts of all the members of the Indian
diamond industry and the continued support of the Indian government.

Article from the Rapaport Magazine - August 2012. To subscribe click here.